SG – Future of short-term accommodation

May 7, 2018 / By  

Short-term accommodation (STA), such as that offered by the Airbnb platform, has received much attention from stakeholders worldwide.

Supporters of STA welcome it because it helps to boost rental income while providing a wider accommodation option for tourists. Those who are against homes being used for STA are concerned about safety, security and privacy being affected by transient occupants. Hotel and service apartment operators are concerned over the potential negative impact on their business.

Some countries have banned STA completely, while others chose to allow it with regulations.

In Singapore, the current rule subject private homes to a minimum stay duration of three consecutive months which determines the minimum term of residential leases. After a lengthy period of consultations and review on STA, the Urban Redevelopment Authority (URA) released its proposed STA framework for public feedback in April 2018.

The key recommendations include:

  1. Management corporations of developments such as condominiums/apartments must obtain the support of at least 80% of the owners (in terms of share value) to allow STA in their developments.
  2. The endorsement of the STA will be for a two-year period and has to be renewed with fresh votes the next round.
  3. An annual rental cap of 90 days for STA usage.
  4. An occupancy cap of six persons per unit at any one time.
  5. Proposals on the role of management corporations and regulation of commercial platform operators.

What might these mean for Singapore’s STA future?

1.  Concentration of STA in the city and its fringe

The “80% rule” is highly onerous for developments that are predominantly owner-occupied as the typical owner occupier is unlikely to agree to STA for the reasons mentioned earlier. Since most suburban condominiums/apartments are mainly owner-occupied, meeting the “80% rule” appears unlikely.

However, developments with a high proportion of homes bought as income yielding investments may have a better chance of meeting that rule. Such properties are more likely to be located at the city fringe or in the city, including the prime districts, where there is a stronger rental market. Developments that are smaller would also be easier to secure the 80% support. Notwithstanding the 90-day cap, landlords will view STA as an opportunity to enhance their rental incomes and are likely to support STA in their developments.

2.  Emergence of a new asset class

Since residential leasing yields in Singapore tend to be very low, investors could see STA as an opportunity to enhance investment returns. If developments are “favourable” towards STA there might be stronger demand from investors in acquiring units therein to the benefit of the sellers. This leads to the question of whether a new asset class might arise where investors could be interested in entire developments where STA is allowed.

3.  Strengthens the traditional leasing market

If STA develops to a significant extent, there is a possibility that units available for normal leasing could be reduced as they are partially committed to STA. Its impact would be higher rents in a tight supply situation or improved or stable rents if there is an excess in leasing supply. This in turn might lead to increased investment in rental homes if rents are more attractive.

Interesting possibilities could arise depending on how STA progresses in the market.

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